Why do people lose so much money in investment using CPF? I think it is not just CPF monies, it also applies to investment using cash. Whether that investment is unit trust, shares or properties, the  majority of people I feel are losing A LOT of money. There are official statistics for CPF monies losses but no statistics for shares and property investments. However considering many people have not broken even from the previous property peak and the fact they are still serving their mortgage loans means that both the capital lost and the lost due to huge interest means that people also lose a A LOT of money in property. Do all these make sense? NO!

According to the MSCI World Net Index, the returns from 31 Jan 1997 to 31 July 2007 had been 236.46% in absolute term or 8.54% per annum. This is taking into consideration:

1. Asia Financial Crisis (which causes many asia economies to meltdown) starting July 1997
2. Technology bubble (causing some tech funds to crash by 90%) starting March 2000
3. September 11 2001 terrorist suicide attack against United States followed by Afghanistan war
4. Severe acute respiratory syndrome  or SARS starting Nov 2002 causing the Asia economies to come to a standstill
5. Invasion of Iraq starting 20 March 2003
6. … and the current liquidity crunch caused by sub-prime problems in the US.

Despite these big problems, the world market has been up by a lot. Why do people lose so much money investing? I propose the following reasons:

1. No patience with their investment. When they see -7% lost, they panic and many will cash out. I receive a call from my client asking why her portfolio is down -7%. This despite the fact that equity can go +/-20% easily;
2. Time horizon too short. Although people say they are “long term” investor, in reality they are short-term investor. So time becomes their enemy, rather then friend;
3. No appropriate portfolio construction. Those who DIY anyhow “bet”. Those who bought the investment through an adviser (such as banks or FA or insurance agents) received wrong advice because there was never a portfolio recommended. All of the time they are always selling the hottest fund of the town. Climate Change? Arigbusiness? Luxury Goods fund? These “hottest” funds are easier to sell because there is a nice story to tell. People like to hear stories from adviser. Good story sells. People don’t understand about portfolio construction. There is no story behind portfolio construction. It looks boring because it consists of boring funds. There is no excitement. So people don’t buy the idea of portfolio construction. I had a client who I saw whom I told him the importance of portfolio construction. He could not understand it until he nearly went bankrupt due playing contra. At last he understood the importance of investing through portfolio but it is probably a little bit too late because all his wealth was wiped up. By the way since it is so difficult to sell the idea that investment needs to be managed from portfolio approach, advisers who tried to do this will eventually give up and start selling investment from "story" approach. Unfortunately this means that clients' behaviour rewards unethical selling and punishes ethical selling. This reminds me of another case in which I lost a client to his relationship manager at the bank who sold him the XYZ hot fund using the "story" approach. Actually I knew what story was about because I also got the standard powerpoint story template to "tell" the story about the fund. If I would to use the same powerpoint slide, I am 100% sure I could have close the case. But I didn't and as a result he invested hundreds of thousands of dollars into that one single fund! Wow... just show powerslide slide given by the fund manager as template can also close sales. I felt really frustrated at times. I did full fact finding; check that his cash flow is OK; ensure that he has sufficient wealth to withstand longetivity risk; and presented him with a full fledge retirement plan; I even tell him not to invest everything and let some money be left in the fixed deposit (which I know runs the risk of his RM telling him to invest it); and finally recommended a diversified portfolio. The result? Because I had no nice story to tell, got ZERO sales from this person. Not even $1. What's this?

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